<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q/A
AMENDMENT NO. 2
(Amending Part I - Items 1, 2 and 6)
Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the Quarter Ended September 30, 1996
Commission File No. 0-26288
CONTOUR MEDICAL, INC.
------------------------------------------------------
(Exact Name of Registrant as Specified in its Charter)
Nevada 77-0163521
- ------------------------------- ----------------------------------
(State or Other Jurisdiction of (IRS Employer Identification Number)
Incorporation or Organization)
6025 Shiloh Road
Alpharetta, Georgia 30005
----------------------------------------
(Address of Principal Executive Offices)
(770) 886-2600
----------------------------------------------------
(Registrant's Telephone Number, Including Area Code)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such report(s), and (2) has been subject to such filing
requirements for the past 90 days.
Yes [ X ] No [ ]
There were 5,946,793 shares of the Registrant's $.001 par value Common Stock
outstanding as of November 14, 1996.
<PAGE> 2
CONTOUR MEDICAL, INC.
FORM 10-Q/A
INDEX
Part I. Financial Information
<TABLE>
<CAPTION>
Item 1. Financial Statements Page
<S> <C> <C>
Consolidated Balance Sheets as of September 30, 1996
and June 30, 1996 3-4
Consolidated Statements of Operations for the Three
Months Ended September 30, 1996 and 1995 5
Consolidated Statements of Stockholders Equity 6-7
Three Months Ended September 30, 1996
Consolidated Statements of Cash Flows for the
Three Months Ended September 30, 1996 and 1995 8-9
Notes to Consolidated Financial Statements 10-15
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 15-17
Item 6. Exhibits and Reports on Form 8-K 18
Signature 18
</TABLE>
-2-
<PAGE> 3
CONTOUR MEDICAL, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
<TABLE>
<CAPTION>
September 30, June 30,
1996 1996
------------ ----------
(Unaudited)
ASSETS
<S> <C> <C>
Current:
Cash $ 400,489 $ 146,219
Accounts receivable - trade
Related parties (Note 4) 2,027,499 1,918,000
Other 7,459,147 2,527,676
Inventories (Note 5) 6,368,222 2,876,792
Refundable income taxes 21,406 21,406
Prepaid expenses and other 839,320 51,519
Due from parent (Note 4) 755,333 618,897
----------- ----------
Total Current Assets 17,871,416 8,160,509
----------- ----------
Property and Equipment, less
accumulated depreciation (Note 6) 1,823,880 1,223,195
----------- ----------
Other Assets:
Goodwill, net of accumulated amortization 10,468,043 1,286,165
Deposit on equipment 503,018 416,184
Other 130,188 172,215
----------- ----------
Total Other Assets 11,101,249 1,874,564
----------- ----------
$30,796,545 $11,258,268
</TABLE>
See accompanying notes to consolidated financial statements.
-3-
<PAGE> 4
CONTOUR MEDICAL, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
<TABLE>
<CAPTION>
September 30, June 30,
1996 1996
------------- -----------
(Unaudited)
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 3,345,228 $ 2,036,652
Accrued expenses 1,128,217 366,716
Current maturities of long-term
debt (Note 7) 11,099,183 1,825,193
---------- ----------
Total Current Liabilities 15,572,628 4,228,561
Long-term debt, less current
maturities (Note 7) 4,152,739 1,352,937
---------- ----------
Total Liabilities 19,725,367 5,581,498
---------- ----------
Convertible debentures, 9% interest
due monthly through July 1, 2003 5,000,000 --
---------- ----------
Stockholders' Equity:
Preferred stock - Series A conver-
tible, $.001 par value, shares
authorized 1,265,000; issued 600,000,
outstanding 185,000 and 600,000
respectively, at aggregate
liquidation preference 875,400 2,528,000
Common stock $.001 par - shares
authorized 76,000,000; issued and
outstanding 5,946,793 and 5,214,223
respectively, (net of $765 discount) 5,182 4,449
Additional paid-in capital 5,196,469 2,911,696
Retained earnings (deficit) (5,873) 232,625
---------- ----------
Total stockholders' equity 6,071,178 5,676,770
$30,796,545 $11,258,268
</TABLE>
See accompanying notes to consolidated financial statements.
-4-
<PAGE> 5
CONTOUR MEDICAL, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
<TABLE>
<CAPTION>
Three Months Ended
(Unaudited)
September 30, September 30,
1996 1995
------------ ------------
<S> <C> <C>
SALES TO NON-RELATED PARTIES $11,076,530 $1,492,129
SALES TO RELATED PARTIES 1,836,000 746,000
----------- ----------
NET SALES 12,912,530 2,238,129
COST OF SALES 9,273,535 1,589,072
----------- ----------
GROSS PROFIT 3,638,995 649,057
OPERATING EXPENSES 3,184,083 489,601
OTHER INCOME (EXPENSE) (827,650) 3,088
----------- ----------
INCOME BEFORE INCOME TAXES (372,738) 162,544
INCOME TAX EXPENSE (BENEFIT) (141,640) 55,265
----------- ----------
NET INCOME (LOSS) $ (231,098) $ 107,279
NET INCOME PER COMMON SHARE (LOSS) $ (.04) $ .02
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES 5,716,891 4,571,677
</TABLE>
See accompanying notes to consolidated financial statements.
-5-
<PAGE> 6
CONTOUR MEDICAL, INC. AND SUBSIDIARIES
Consolidated Statement of Stockholders' Equity
<TABLE>
<CAPTION>
Additional
Common Stock Paid-in
Shares Amount Capital
--------- ------ ----------
<S> <C> <C> <C>
Balance, June 30, 1996 5,214,223 $4,449 $2,911,696
Exercise of common stock
warrants 296,820 297 625,209
Conversions of preferred
stock 415,000 415 1,659,564
Conversion dividend 20,750 21
Preferred dividends in
arrears -- -- --
Net income -- -- --
Balance, September 30, 1996 5,946,793 $5,182 $5,196,469
</TABLE>
See accompanying notes to consolidated financial statements.
-6-
<PAGE> 7
CONTOUR MEDICAL, INC. AND SUBSIDIARIES
Consolidated Statement of Stockholders' Equity
<TABLE>
<CAPTION>
Convertible
Preferred Stock
----------------- Retained
Shares Amount Earnings
-------- -------- -----------
<S> <C> <C> <C>
Balance, June 30, 1996 600,000 $2,528,000 $232,625
Exercise of common stock
warrants -- -- --
Conversions of preferred
stock (415,000) (1,660,000) --
Preferred dividends in
arrears 7,400 (7,400)
Net (loss) (231,098)
Balance, September 30, 1996 185,000 $ 875,400 $(5,873)
</TABLE>
See accompanying notes to consolidated financial statements.
-7-
<PAGE> 8
CONTOUR MEDICAL, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
Three Months Ended
(Unaudited)
September 30, September 30,
1996 1995
---------- ----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) $ (231,098) $ 107,279
Adjustments to reconcile net income
to net cash provided (used) by
operating activities:
Depreciation and Amortization 163,661 33,076
Tax benefit from NOL -- 55,265
(Increase) decrease in accounts
receivable (5,040,970) (123,127)
(Increase) decrease in inventories (3,491,430) (204,788)
(Increase) decrease in other
current assets and other assets (9,927,652) ( 84,713)
Increase (decrease) in accounts
payable 1,308,576 ( 16,227)
Increase (decrease) in accrued
expenses and other liabilities 761,501 15,103
------------ ----------
Net cash provided by operating
activities (16,457,412) (218,132)
CASH FLOW FROM INVESTING ACTIVITIES:
Deposit on equipment ( 86,834) --
Acquisition of equipment ( 720,106) ( 95,921)
Decrease (increase) in due
from parent ( 136,436) 150,000
------------- ---------
Net cash provided(used) by
investing activities ( 943,376) $54,079
</TABLE>
See accompanying notes to consolidated financial statements.
-8-
<PAGE> 9
CONTOUR MEDICAL, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
Three Months Ended
(Unaudited)
September 30, September 30,
1996 1995
------------ ------------
<S> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Acquisition Notes Issued $ 10,850,000 $ --
Convertible Debentures Issued 5,000,000 --
Net borrowing on loans 1,179,552 126,135
Exercise of warrants 625,506 50,000
------------- -----------
Net cash provided (used) by
financing activities 17,655,058 176,135
------------- -----------
NET INCREASE (DECREASE) IN CASH 254,270 12,082
CASH BEGINNING OF PERIOD 146,219 96,235
------------- -----------
CASH END OF PERIOD $ 400,489 $ 108,317
SUPPLEMENTAL DISCLOSURE OF CASH
FLOW INFORMATION AND NON-CASH
ACTIVITIES:
Cash paid for interest $ 199,255 $ 28,890
</TABLE>
See accompanying notes to consolidated financial statements.
-9-
<PAGE> 10
CONTOUR MEDICAL, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited)
1. BASIS OF PRESENTATION
The accompanying unaudited condensed financial statements have been prepared in
accordance with generally accepted accounting principles for interim financial
information. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments, consisting
of normal recurring accruals, considered necessary for a fair presentation have
been included. It is suggested that these condensed financial statements be read
in conjunction with the financial statements and notes thereto included in the
June 30, 1996, audited financial statements for Contour Medical, Inc. The
results of operations for the periods ended September 30, 1996 and 1995 are not
necessarily indicative of the operating results for the full year.
The consolidated financial statements include the accounts of Contour Medical,
Inc. and its wholly-owned subsidiaries, Contour Fabricators, Inc. ("CFI"),
Contour Fabricators of Florida, Inc. ("CFFI") and, since March 1, 1996,
AmeriDyne Corporation ("AmeriDyne"), and effective July 1, 1996 Atlantic Medical
Supply Company, Inc. ("Atlantic") collectively referred to as the Company. All
material intercompany accounts and transactions have been eliminated. The
Company is a majority-owned subsidiary of Retirement Care Associates, Inc.
("Parent").
On March 1, 1996, Contour Medical, Inc. acquired AmeriDyne through a merger
which was accounted for as a purchase. The Company issued 369,619 shares of its
common stock and paid $250,000 to the sole stockholder of AmeriDyne in
connection with this purchase.
On August 6, 1996, the Company acquired all of the outstanding stock of Atlantic
Medical Supply Company, Inc. ("Atlantic"), a distributor of disposable medical
supplies and a provider of third-party billing services to the nursing home and
home health care markets. The acquisition was made retroactively to July 1,
1996. The Company paid $1.4 million in cash and $10.5 million in promissory
notes (the "Atlantic Notes") for all of the outstanding stock of Atlantic. The
Atlantic Notes bear interest at 7% per annum and are due in full on January 10,
1997. In the event of a default in the payment of the Atlantic Notes, they are
convertible into shares of common stock of Parent.
In addition, on August 9, 1996, the Company acquired the remaining minority
interest of Facility Supply, Inc., a majority owned subsidiary of Atlantic. The
acquisition was made retroactively to July 1, 1996. The Company paid $50,000 in
cash and $350,000 in promissory notes (the "Facility Notes") for the remaining
outstanding stock of Facility Supply, Inc. The Facility Notes bear interest at
7% per annum and are due in full on January 10, 1997. In the event of a default
in the payment of the Facility Notes, they are convertible into shares of common
stock of Parent.
In return for the Parent's guarantee of the Atlantic and Facility Notes, with
which the Company could not have completed the Atlantic acquisition, the Company
has agreed to compensate the Parent $500,000, such amount to be satisfied by the
issuance of 100,000 shares of Contour Common Stock valued at $5.00 per share.
The Company believes this valuation represents market value and approximates the
average trading price of Contour Common Stock during the time the Atlantic
acquisition was negotiated.
-10-
<PAGE> 11
2. CHANGE IN METHOD OF ACCOUNTING FOR TAXES AND INCOME
Effective January 1, 1993, the Company adopted Statement of Financial Accounting
Standards No. 109, "Accounting for Income Taxes," which requires recognition of
estimated income taxes payable or refundable on income tax returns for the
current year and for the estimated future tax effect attributable to temporary
differences and carry forwards. Measurement of deferred income tax assets being
reduced by available tax benefits not expected to be realized.
3. CHANGE IN YEAR END
The Company changed its fiscal year end from December 31 to June 30 during 1995.
Atlantic also changed its fiscal year end from December 31 to June 30 during
1996.
4. RELATED PARTY TRANSACTIONS
During 1995, the Company began distributing medical supplies to health care
facilities owned, leased or managed by the Parent. Sales to these facilities
approximated $1,836,000 for the three month period ended September 30, 1996, and
$746,000 in 1995. Trade accounts receivable of $2,027,000 and $1,918,000 were
outstanding as of September 30, 1996 and June 30, 1996, respectively, as related
to health care facility sales to the Parent. Additionally, the Company had an
outstanding loan receivable due from its Parent of approximately $755,000 at
September 30, 1996, which is due within 45 days of advance with interest at
prime and $619,000 at June 30, 1996, which is due on demand with no stated
interest rate.
5. INVENTORIES
Inventories are summarized as follows:
<TABLE>
<CAPTION>
September 30, June 30,
1996 1996
---------- ----------
<S> <C> <C>
Raw Materials $ 284,463 $ 330,699
Work in process 70,604 96,647
Finished goods 6,013,155 2,449,446
---------- ----------
$6,368,222 $2,876,792
</TABLE>
All inventories are pledged as collateral.
6. PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
<TABLE>
<CAPTION>
September 30, June 30,
Useful Lives 1996 1996
------------ ---------- ----------
<S> <C> <C> <C>
Land & Land Improvements -- 59,842 $ 50,000
Building 5-45 years 596,247 596,247
Computer Equipment 3-7 years $1,010,445 --
Machinery and equipment 3-7 years 2,208,217 1,798,520
Furniture and fixtures 5-7 years 222,920 146,536
Leasehold improvements 5 years 290,563 251,352
Vehicles 3-5 years 188,202 72,245
---------- ----------
4,576,436 2,914,900
Less accumulated depreciation 2,752,556 1,691,705
---------- ----------
$1,823,880 $1,223,195
</TABLE>
-11-
<PAGE> 12
Certain property and equipment are pledged as collateral (see Notes 7 and 8).
7. NOTES PAYABLE
Notes payable at September 30, 1996 and June 30, 1996 consisted of the
following:
<TABLE>
<CAPTION>
September 30, June 30,
1996 1996
---------- -----------
<S> <C> <C>
Note payable to sellers of Atlantic Medical
Supply Company, Inc. at 7%, principal and
interst due on January 10, 197, in event
of default convertible into common stock
of Parent $10,500,000 --
Note payable to sellers of Facility
Supply, inc. at 7%, principal and
interest due on January 10, 1997, in
event of default convertible into common
stock of Parent 350,000 --
Note payable to bank, interest at prime plus
1% (9.25% at June 30, 1996), principal of
$5,000 plus interest due monthly through
June 2000, collateralized by equipment 203,750 $ 217,559
Note payable to bank, interest at prime plus
.75% (9.00% at June 30, 1996) principal of
$7,605 plus interest due monthly through
May 2000, collateralized by equipment and
real property 480,899 496,171
Mortgage payable to bank, bearing interest
at 8.58%, principal and interest of $6,793,
due monthly through December 2003,
collateralized by equipment and real property 445,677 456,233
Mortgage payable to bank, interest at prime
plus .75% (9.00% at June 30, 1996) principal
of $1,190 plus interest due monthly through
December 2000, collateralized by equipment
and real property 59,522 64,284
Borrowings under $7,000,000 line of credit,
interest at 30 day libor plus 200bp (7.44%
at September 30, 1996), payable monthly,
collateralized by accounts receivable, and
inventory. Principal due October 31, 1997 2,994,105 --
Borrowings under $100,000 line of credit,
interest at prime plus .75% (9.00%
at June 30, 1996), payable monthly,
collateralized by accounts receivable,
inventory, equipment, and real property -- 65,000
Note payable to bank, interest at 8.75%
principal and interest at $1,282 due monthly
through April 2001, collateralized by equipment 57,903 60,436
</TABLE>
-12-
<PAGE> 13
<TABLE>
<S> <C> <C>
Borrowings under $500,000 line of credit,
interest at prime plus .25% (8.5% at June
30, 1996) payable monthly, collateralized
by accounts receivable, inventory and
equipment, and guarantees by Retirement
Care Associates, Inc. -- 433,535
Note payable to leasing institution,
interest at 14.6%, monthly installments of
$309 plus sales tax. Matures June 1997,
collateralized by computer equipment 2,079 2,924
Note payable to equipment company, interest at
11%, monthly installments of $533 including
interest. Matures December 1997,
collateralized by equipment 7,436 8,805
Note payable to stockholder, interest at 10%,
principal and interest of $5,693, due monthly
through March 1999 150,551 163,646
Note payable to bank, interest at 9%, principal
and interest of $3,600 due monthly through May
1997, collateralized by accounts receivable,
inventory, furniture, fixtures, equipment,
machinery, bank accounts, and guarantees of
Parent -- 38,924
Note payable to bank, interest at 9%, principal
and interest of $5,266 due monthly through
October 1997, collateralized by accounts
receivable, inventory, furniture, fixtures,
equipment, machinery, bank accounts, and
guarantees of Parent -- 212,613
Borrowings under $975,000 line of credit, interest
at prime plus 1.25% (9.5% at June 30, 1996).
Principal is due on demand but no later than May
15, 1997. Collateralized by accounts receivable,
inventory, furniture, fixtures, equipment,
machinery, bank accounts, and guarantees of
Parent -- 958,000
----------- ----------
$15,251,922 $3,178,130
Less current maturities 11,099,183 1,825,193
----------- ----------
$ 4,152,739 $1,352,937
</TABLE>
Certain of the above agreements contain financial and operating covenants,
including requirements that the Company maintain certain net worth levels and
satisfy current and debt-to-net worth ratios. The Company was in compliance with
all debt covenants as of September 30, 1996.
-13-
<PAGE> 14
The aggregate maturities of long-term debt are as follows as of September 30,
1996:
<TABLE>
<S> <C>
1997 $ 11,099,183
1998 3,273,405
1999 303,777
2000 491,884
2001 83,674
</TABLE>
Statement of Financial Accounting Standards No. 107, "Disclosure About Fair
Value of Financial Instruments," requires that the Company disclose estimated
fair values for its financial instruments. Fair value is defined as the price at
which a financial instrument could be liquidated in an orderly manner over a
reasonable time period under present market conditions. The rates of the
Company's fixed obligations approximate those rates of the adjustable loans.
Therefore, the fair value of those loans has been estimated to be approximately
equal to their carrying value.
COMMITMENTS AND CONTINGENCIES:
The Company is obligated under various noncancelable leases for equipment and
office space. Future minimum lease commitments under operating leases were as
follows as of September 30, 1996.
<TABLE>
<S> <C>
1997 $ 389,974
1998 412,224
1999 385,974
2000 307,224
2001 305,062
</TABLE>
EMPLOYMENT AGREEMENT - The Company has entered into an employment agreement with
a key executive for a five-year period ending June 1998. The agreement provides
for annual base compensation of $100,000.
LITIGATION - During 1994, the Company was a defendant in an employment injury
lawsuit filed by one of its employees. The Company settled this dispute for
approximately $30,000.
The Company was a defendant in a lawsuit filed by one of its former employees
for wrongful discharge of employment. During the year ended December 31, 1993,
the Company settled this dispute for $85,000.
8. INCOME TAXES:
Income taxes are provided based on the liability method of accounting pursuant
to Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes."
9. ACQUISITION:
Effective March 1, 1996, the Company acquired all of the outstanding common
stock of AmeriDyne for approximately $2.475 million in cash and stock. AmeriDyne
distributes medical supplies to hospitals, clinics, physicians, pharmacies,
nursing homes and other health care providers.
The purchase price exceeded the fair value of the net assets acquired by
approximately $1.3 million. The acquisition was accounted for as a purchase. The
resulting goodwill is being amortized on the straight-line basis over 40 years.
-14-
<PAGE> 15
On August 6, 1996, the Company acquired all of the outstanding stock of
Atlantic. The acquisition was made retroactively to July 1, 1996. The Company
paid $1.4 million in cash and $10.5 million in promissory notes (the "Atlantic
Notes") for all of the outstanding stock of Atlantic. The Atlantic Notes bear
interest at 7% per annum and are due in full on January 10, 1997. In the event
of a default on the payment of the Atlantic Notes, they are convertible into
shares of common stock of Parent.
In addition, on August 9, 1996, the Company acquired the remaining minority
interest of Facility Supply, Inc., a majority owned subsidiary of Atlantic. The
acquisition was made retroactively to July 1, 1996. The Company paid $50,000 in
cash and $350,000 in promissory notes (the "Facility Notes") for the remaining
outstanding stock of Facility Supply, Inc. The Facility Notes bear interest at
7% per annum and are due in full on January 10, 1997. In the event of a default
in the payment of the Facility Notes, they are convertible into shares of common
stock of Parent.
In return for the Parent's guarantee of the Atlantic and Facility Notes, without
which the Atlantic acquisition could not have been completed by the Company, the
Company agreed to pay Parent $500,000, such payment to be satisfied with the
issuance of 100,000 shares of the Company's common stock to Parent.
The following unaudited pro forma consolidated results of operations presents
information as if the acquisitions had occurred at the beginning of the fiscal
year in 1995. The pro forma information is provided for information purposes
only. It is based on historical information and does not necessarily reflect the
results that would have occurred nor is it necessarily indicative of future
results of operations of the combined enterprise.
<TABLE>
<CAPTION>
Unaudited Unaudited
Three Months Ended Year Ended
September 30, 1995 June 30, 1996
------------------ -------------
<S> <C> <C>
Sales $ 10,430,697 $ 34,333,727
Net Income 590,841 $ 585,784*
Per share 0.13 $ 0.10
</TABLE>
* Full year earnings reflect a write down of approximately $1.1 million recorded
in Atlantic's historical financial statements for events occurring prior to July
1, 1995.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
The following should be read in conjunction with the attached Financial
Statements and Notes thereto of the Company.
THREE MONTHS ENDED SEPTEMBER 30, 1996 COMPARED TO THREE MONTHS ENDED SEPTEMBER
30, 1995
- -----------------------------------------------------------------------------
As a result of the factors discussed below, for the three months ended September
30, 1996, the Company had a net loss of $231,098 compared to net income of
$107,279 for the three months ended September 30, 1995.
Sales increased by $10,674,000 for the three months ended September 30, 1996 as
compared to the three months ended September 30, 1995. Approximately $52,000 of
this increase related to an increase in demand for the Company's
-15-
<PAGE> 16
traditional product lines. Approximately $3,226,000 of the increase resulted
from sales of bulk medical supplies by AmeriDyne and approximately $7,396,000 in
sales of bulk medical supplies by Atlantic. AmeriDyne and Atlantic were acquired
by the Company effective March 1, 1996,and July 1, 1996,respectively.
Gross profit for the three months ended September 30, 1996, was $3,638,995 or
28% of sales, as compared to $649,057 or 29% of sales, for the same period of
the previous year.
Operating expenses for the three month period ending September 30, 1996, were
$3,184,083 as compared to $489,601 in 1995. The operating expenses increased
approximately 550% as the result of the Atlantic and AmeriDyne acquisitions,
although as a percent of sales the increase represented only a 2.8% increase.
The largest components of operating expenses are indirect labor (including sales
salaries and commissions), occupancy expense, depreciation and amortization, and
insurance. In particular, prior to the acquisitions of AmeriDyne and Atlantic,
the Company did not have a direct sales force and, therefore, incurred minimal
selling expenses as a percentage of sales. As of September 30, 1996, selling
expenses represented approximately 6% of total sales. Indirect labor, including
sales salaries and commissions, increased by $1,283,000 for the three months
ended September 30, 1996 compared to the same period last year, to approximately
$1,532,000. Occupancy expense, depreciation and amortization and insurance costs
increased to approximately $733,000, an increase of $509,000 compared to the
same period last year. Other expenses, including payroll taxes, professional
fees, travel and entertainment, equipment leases, supplies and vehicle costs and
bad debt expense, accounted for approximately $911,000 in operating expenses, an
increase of $583,000 compared to the same period last year.
Other income and expenses are made up of interest expense, debts recovered that
were previously written off, service charge income, and gains and losses on the
disposition of assets. Interest expense for the three month period ending
September 30, 1996 was approximately $317,000 compared to $29,000 for the same
period last year. Interest expense increased primarily as a result of the
$5,000,000 convertible debentures issued on July 12, 1997, bearing interest at
9% per annum and issuance of the Atlantic Notes and Facility Notes. The Company
also incurred $500,000 in financing costs in connection with the Parent's
guaranty of the Atlantic acquisition.
LIQUIDITY AND CAPITAL RESOURCES
At September 30, 1996, the Company had $2,298,788 of working capital as compared
to $3,931,948 on June 30, 1996.
Operating activities for the three months ended September 30, 1996, utilized
cash of $16,457,412 as compared to operating activities during the three months
ended September 30, 1995, which utilized cash of $218,132. The increased use of
cash was primarily due to increases in inventory, accounts receivable and other
assets as a result of the Atlantic acquisition.
The cash flows used in investing activities of $943,376 during the three months
ended September 30, 1996, were a result of an advance of $136,000 to Parent and
by the use of $807,000 for the acquisition of additional equipment and a deposit
on equipment.
Cash flow of $17,655,058 was provided from financing activities in 1996, whereas
in 1995 cash flows from financing activities provided cash of $176,135. During
the three months ended September 30, 1996, $5,000,000 was provided from
debenture borrowings, $10,850,000 from promissory notes related to the
acquisition of Atlantic, and $625,506 was provided from the exercise of
warrants.
-16-
<PAGE> 17
The Company currently maintains a revolving line of credit totalling $7 million
with its banks for short-term working capital needs. As of September 30,1996,
$2,994,105 had been borrowed against these lines.
On August 6, 1996, the Company acquired all of the outstanding stock of
Atlantic. The acquisition was made retroactively to July 1, 1996. The Company
paid $1,400,000 in cash and promissory notes totaling $10,500,000 (the "Atlantic
Notes") for the stock of Atlantic, and subsequently paid an additional $50,000
in cash and issued a promissory note (the "Facility Notes") for $350,000 to
acquire a minority interest in a subsidiary of Atlantic Notes, Facility Supply,
Inc. The cash for this transaction came from the $5 million debenture placement
that was completed on July 12, 1996. The Company paid the Atlantic Notes and
Facility Notes from the proceeds of a $9,750,000 loan from the Parent, payable
in accordance with the terms of a promissory note that was convertible into
shares of the Company's common stock at the option of the note holder. The
Parent simultaneously converted this promissory note into 1,950,000 shares of
the Company's common stock. The balance of the Atlantic Notes and Facility
Notes was paid by borrowing under the Company's lines of credit.
The Company presently does not anticipate any commitments for material capital
expenditures.
SEASONALITY AND INFLATION
The Company's business is relatively consistent and stable on a monthly basis,
and has not indicated any seasonality over the prior three fiscal periods.
In addition, the Company does not believe that inflation has had a material
effect on its results from operations during the past three fiscal years. There
can be no assurance, however, that the Company's business will not be affected
by inflation in the future.
-17-
<PAGE> 18
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibit 27 Restated Financial Data Schedule
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
Registrant has duly caused this Report to be signed on its behalf by the
undersigned thereunto duly authorized.
CONTOUR MEDICAL, INC.
Date: October 20, 1997 By: /s/ Donald F. Fox
---------------------------------------
Donald F. Fox, President, Treasurer and
Chief Financial Officer
-18-
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEETS AND STATEMENTS OF OPERATIONS FOUND ON PAGES 3-5 OF
THE COMPANY'S FORM 10-Q FOR THE YEAR TO DATE, AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<RESTATED>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-END> SEP-30-1996
<CASH> 400,489
<SECURITIES> 0
<RECEIVABLES> 9,486,646
<ALLOWANCES> 0
<INVENTORY> 6,368,222
<CURRENT-ASSETS> 17,871,416
<PP&E> 1,823,880
<DEPRECIATION> 0
<TOTAL-ASSETS> 30,796,545
<CURRENT-LIABILITIES> 15,572,628
<BONDS> 0
5,182
0
<COMMON> 875,400
<OTHER-SE> 5,190,596
<TOTAL-LIABILITY-AND-EQUITY> 30,796,545
<SALES> 12,912,530
<TOTAL-REVENUES> 12,912,530
<CGS> 9,273,535
<TOTAL-COSTS> 9,273,535
<OTHER-EXPENSES> 4,011,733
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (372,738)
<INCOME-TAX> 141,640
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (231,098)
<EPS-PRIMARY> (.04)
<EPS-DILUTED> (.04)
</TABLE>
